Media Release of April 28, 2020

The best protection in a crisis situation: solid balance sheets and low debt

How do European family-run or -owned businesses cope when a crisis strikes? Birgitte Olsen, Lead Portfolio Manager of BB Entrepreneur funds at Bellevue Asset Management, comments on the opportunities and challenges for entrepreneur-led businesses amid the current Covid-19 crisis.

"We aren't spending any time negotiating with banks," remarked the Spanish CFO and co-owner of a family-run pharma firm in our talk earlier this week. Instead, management is concentrating on protecting jobs and sharpening the company's competitive edge, so it can emerge from the crisis stronger than before. Production worker wages were increased by 20% and private transportation was arranged for all employees who could not work from home. The CFO reiterated the company's initial guidance for mid-single-digit growth in 2020; we expect 10% growth and steady margins.

The current crisis has put a considerable strain on corporate cash management and supply capabilities, even for family-led companies. But the latter's distinctive qualities put them in a better position to navigate the crisis. These include strong balance sheets with low levels of debt and a constant focus on FCF yields, as cash flow from operations is their main source of funding. This "corporate hygiene" guarantees a company's ongoing independence, both in a financial and strategic sense. Investment plans and innovation projects can be pursued without any constraints, which ensures a company's viability and keeps its growth prospects intact.

The differences in corporate debt levels before the crisis is striking. Listed European companies had an average net debt/EBITDA ratio of about 1.4 while the ratio for their counterparts in North America was at a historical high of >2. If a company's operating income falls by more than 25% as a result of the corona crisis, debt covenants will very likely be violated. European companies are more cautious when it comes to debt risks. Company size is a significant factor, too: small and mid cap companies tend to be even more risk-averse. Empirical evidence shows that family-led companies have lower leverage ratios and it follows that the BB Entrepreneur Europe Small Fund's average leverage ratio of 0.2 is well below the benchmark ratio. The following graph illustrates these facts.

Our recent research and investment activity has focused on two other important aspects besides a company's financial independence: Is a company capable of maintaining its output from a supply-side perspective and producing a reliable flow of products and services? And, from a demand-side perspective, are there any structural changes underway; how long could demand for its products or services be depressed; how fast can it recover? Can we assume that a company will emerge from the crisis as strong, if not stronger, as before the crisis? We're also looking at the action a company's executives are taking in response to the crisis when determining the fair price of its stock. Our good contacts with company executives and extensive industrial network help us as we do our research.

Development and position of BB Entrepreneur Europe Small Fund
The BB Entrepreneur Europe Small Fund (LU0631859229) has outperformed its benchmark, the MSCI Europe Small Cap (ex-UK) Index, by 4.3 percentage points year to date (as of April 20, 2020). This outperformance was driven in part by the adjustments we made to the portfolio beginning in June of last year, by which we increased the weighting of healthcare and consumer stocks and reduced our exposure to more cyclical sectors on strength. We maintained our overweight in tech stocks.

During the Covid-19 crash, we actively managed the portfolio and took advantage of new investment opportunities. We've opened five new positions since the beginning of this year, including a German manufacturer of micro batteries, a Swedish candy producer and an online pharmacy based in Switzerland.

Update on BB Entrepreneur Swiss Small & Mid
Our Swiss small and mid-cap fund (LU1477743543) has also generated good returns and it has beaten its benchmark the SPIEX by 8.5 percentage points since July 2019, after the successful realignment of the fund's portfolio. The fund has delivered a top-quartile performance year-to-date and on a 12-month basis.

 

For further information:
Bellevue Asset Management AG, Seestrasse 16 / P.O. Box, CH-8700 Küsnacht/Zurich
Tanja Chicherio, Tel. 9,

Bellevue Asset Management

Bellevue Asset Management and its sister company StarCapital based in Oberursel outside Frankfurt, Germany are part of Bellevue Group, an independent, Swiss financial group registered in Zurich and listed on the Swiss Exchange SIX. Bellevue was established in 1993 and is a leading investment boutique specialized in healthcare equities and traditional as well as alternative investment strategies with assets under management of CHF 10.6 billion.

Disclaimer: This document is neither directed to, nor intended for distribution or use by, any person or entity who is a citizen or resident of any locality, state, country or jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. It is particularly not intended for US persons, as defined under Regulation S of the U.S. Securities Act of 1933, as amended. The information and data presented in this document are not to be considered as an offer to buy, sell or subscribe to any securities or financial instruments. The information, opinions and estimates contained in this document reflect a judgment at the original date of release and are subject to change without notice. This information pays no regard to the specific or future investment objectives, financial or tax situation or particular needs of any specific recipient and in particular tax treatment depends on individual circumstances and may be subject to change. This document is not to be relied upon in substitution for the exercise of independent judgment. Before making any investment decision, investors are recommended to ascertain if this investment is suitable for them in the light of their financial knowledge and experience, investment goals and financial situation, or to obtain specific advice from an industry professional. The details and opinions contained in this document are not to be considered as recommendation or investment advice. Every investment involves risk, especially with regard to fluctuations in value and return, and investors' capital may be at risk. If the currency of a financial product is different from your reference currency, the return can increase or decrease as a result of currency fluctuations. Past performance is no indicator for the current or future performance. The performance data are calculated without taking account of commissions and costs that result from subscriptions and redemptions. Commissions and costs have a negative impact on performance. For more information about the associated costs, please refer to the related costs and fees section of the prospectus. Any benchmarks/indices cited herein are provided for information purposes only. No benchmark/index is directly comparable to the investment objectives, strategy or universe of the subfund. The performance of a benchmark shall not be indicative of past or future performance of the subfund. Financial transactions should only be undertaken after having carefully studied the current valid prospectus and are only valid on the basis of the latest version of the prospectus and available annual and halfyearly reports. Please take note of the risk factors. Countries of distribution and local representatives The Bellevue Funds (Lux) is registered and admitted for public distribution in Austria, Germany, Luxembourg, Spain and Switzerland. Austria Paying and information agent: ERSTE BANK der oesterreichischen Sparkassen AG, Am Belvedere 1, A-1100 Vienna Germany Information agent: ACOLIN Europe GmbH, Reichenaustrasse 11a-c, D-78467 Konstanz Spain Representative: atl Capital, Calle de Montalbán 9, ES-28014 Madrid - CNMV under the number 938 Switzerland The Bellevue Funds (Lux) SICAV is registered for public offering and distribution in Switzerland with the Swiss Financial Market Supervisory Authority. Representative agent in Switzerland: ACOLIN Fund Services AG, Leutschenbachstrasse 50, CH-8050 Zurich Paying agent in Switzerland: Bank am Bellevue AG, Seestrasse 16, P.O.Box, CH-8700 Küsnacht You can obtain the sales prospectus, Key Investor Information Document ("KIID"), statutes and the current annual and half-yearly reports, the current share prices and further information about the fund free of charge in German from the management company Bellevue Asset Management AG, Seestrasse 16, CH-8700 Küsnacht, the representative agent in Switzerland or online at In respect of the units distributed in or from Switzerland, the place of performance and jurisdiction is at the registered office of the representative agent.